By George Serafeim & Sakis Kotsantonis
On June 1 the world listened as President Donald J. Trump proclaimed that the US would withdraw from the Paris climate accord. Such a move might lead some companies and investors to assume that “business as usual” is now the most likely climate scenario.
We call this the “Trump climate trap,” and it’s a real danger. On May 31 another major event occurred that leaves us more optimistic.
A shareholder resolution called on Exxon Mobil Corp., the world’s biggest publicly listed energy company, to disclose the impact on its business under a 2-degree scenario. (Such a scenario is a world in which we have at least a 50 percent chance of limiting temperature increases to no more than 2 degrees Celsius.)
Despite the ExxonMobil board’s recommendation that investors vote against the proposal, a striking 62 percent of the votes were in favor, sending a strong signal that climate change is a significant financial risk and that shareholders want to know more about how companies will transform their operations and products to remain competitive in a low-carbon world.
Just a year ago a similar resolution at ExxonMobil’s annual meeting received only 38 percent support.
Other companies’ shareholder proposals will likewise address climate-change issues, raising important questions for boards of directors. In particular, boards will have to show that they understand two things:
- How climate change and the adaptation to a low-carbon economy will affect different sectors. For example, directors of auto manufacturers and auto parts suppliers will need to understand how shared and autonomous mobility will accelerate electrification of the transportation sector, affecting car sales.
- How the organization’s strategy is compatible with a low-carbon economy and what investments need to be made to remain competitive in a low-carbon world.
George Serafeim is an associate professor of business administration at Harvard Business School. Sakis Kotsantonis is the managing partner of KKS Advisors.